New Oriental Jumps on Stimulus Bets: China Overnight

By Belinda Cao and Leon Lazaroff -
Sep 27, 2012

(Corrects interest rate moves in third paragraph)

Chinese equities in New York
rallied for the first time this week on speculation the
government will take further steps to revive the economy and
bolster stocks trading near their cheapest level in six years.

Chinese policy makers have cut interest rates twice this
year and yesterday injected a record amount of funds into the
financial system as they strive to ignite the economy before a
once-in-a-decade political power transition. Companies in the
Shanghai Composite Index traded for 8.4 times estimated profits
on Sept. 26, the lowest level in data going back to 2006. The
valuation rose to 8.6 times yesterday.

“Stimulus is quite possible as the Chinese appear to have
a very strong interest to make sure that the new regime takes
over under at least stable if not re-accelerating economic
conditions,” Mark Luschini, chief investment strategist for
Philadelphia-based Janney Montgomery Scott LLC, which manages
about $54 billion, said by phone yesterday. “Fund managers are
waking up to the notion that Chinese equities are cheap and
therefore attractive if in fact China is set to initiate
measures to stem the decline in economic activity.”

China ETF Climbs

The Communist Party will hold its 18th Congress on Oct. 10
to pick new leaders, the Hong Kong Economic Journal reported on
Sept. 20, citing people it didn’t identify familiar with the
situation. Yesterday’s funds injection reduced the one-month
money market rate by the most in eight months, easing access for
cash before a weeklong holiday starting Oct. 1.

Huaneng Power, based in Beijing, surged 3.5 percent to
$29.99, the highest close since August 2009. The advance in the
company’s American depositary receipts, each representing 40
underlying shares, helped narrow a discount versus its Hong Kong
stock to 0.4 percent, from 1.5 percent a day earlier.

The Shenzhen, China-based company’s ADRs lost 13 percent in
the two days after CLSA Asia Pacific Markets cut its price
target by 94 percent on Sept. 25, citing a worsening outlook for
its products.

China started to promote the use of cars powered by
alternative energy in 11 government agencies, the Ministry of
Industry and Information Technology said in a statement on its
website yesterday. BYD was one of the two carmakers involved in
the program, according to the statement.

BYD Vice President Yang Long-zhong resigned “due to a
restructuring of the company’s business and personal reasons,”
BYD said in a filing to the Hong Kong Stock Exchange yesterday.

‘Timely Manner’

New Oriental climbed 6.8 percent to $15.55 in New York, the
highest level since July 16. The Beijing-based company tumbled
57 percent two days after saying on July 17 that it was being
investigated by the U.S. Securities and Exchange Commission.
Short selling firm Muddy Waters LLC also questioned New
Oriental’s accounting practices in a report on July 18.

The ADRs rose partly on the back of better sentiment toward
Chinese stocks and speculation the SEC investigation will be
resolved in New Oriental’s favor, Trace Urdan, an analyst at
Wells Fargo & Co. who rates the stock outperform, said by phone
yesterday from San Francisco. New Oriental jumped 8 percent on
Sept. 21 when Urdan issued a note saying the case would probably
be resolved in a “timely manner.”

China Mobile Games & Entertainment Group Ltd. (CMGE), which
started listing ADRs on the Nasdaq Stock Market Sept. 25, rose
1.6 percent to $15.75 yesterday. No transactions were made on
the first day and 2,887 ADRs were traded in the second day, data
compiled by Bloomberg showed. Each ADR represents 14 ordinary
shares in the mobile games developer.

‘It’ll Take Time’

The company, being spun off from Hong Kong-listed VODone
Ltd. (82), chose to do a so-called “by introduction” listing aimed
at boosting its name recognition on the U.S. market rather than
raising funds, Chairman Lijun Zhang said in an interview at
Bloomberg’s headquarters in New York on Sept. 25. “It’ll take
time for the market to fairly price the stock,” he said.

7 Days, the second-largest budget hotel owner in China,
fell 2.5 percent to $11.65 in New York, dropping for the first
time in five days.

The ADRs reached a four-month high of $11.95 on Sept. 26
after the Guangzhou-based company said a consortium led by the
Carlyle Group LP (CG), Sequoia Capital and existing shareholders
including the company’s co-chairmen made a “non-binding”
proposal to buy the company for $12.7 per ADR.